CACI International Inc. said yesterday that the General Services Administration is investigating whether the Arlington-based company violated contracting rules and whether it should be banned from future government contracts.
Most of CACI's business comes from the federal government. News of the investigation sent its share price down 12 percent to close yesterday at $37.48. CACI shares have fallen 18 percent since April 30, the Friday before reports broke that one of its interrogators, Steven A. Stefanowicz, was implicated in an Army investigation into abuse of Iraqi prisoners at Abu Ghraib prison in Baghdad.
CACI chief executive J.P. "Jack" London said the GSA is investigating how the company was able to use an information technology contract to hire and supply civilian interrogators to the Army. "That's the scope, at least at this point, of their investigation," London said in a conference call with analysts.
"If there have been some mistakes on our part from the contracting side, inadvertently, we will work diligently to correct them," London said. "We anticipate that the government will accept our efforts to remedy these problems and that either any suspension or debarment actions will not be needed."
The GSA sent a letter to CACI on Wednesday requesting information about the contract, said Mary Alice Johnson, a GSA spokeswoman. "The suspension and debarment official of GSA . . . asked CACI to come in and talk," Johnson said. "Some things have come to that individual's attention and he has asked the company to come in and discuss them."
London said CACI is aware of four other investigations into the company's involvement at Abu Ghraib in addition to the GSA's. Those include inquiries by the Army's Office of the Inspector General, the Defense Contract Audit Agency, the military intelligence investigation led by Maj. Gen. George R. Fay and the Interior Department's inspector general.
An Army report on Abu Ghraib accused Stefanowicz of encouraging soldiers to set conditions for interrogations and said he "clearly knew his instructions equated to physical abuse." Stefanowicz's lawyer has said his client was wrongly accused.
CACI's interrogation work for the Defense Department was done under a contract managed by the Interior Department. The contract was a blanket-purchase agreement, a type of contract that is large and vaguely worded to give agencies flexibility and to speed up purchases. CACI's contract was designed for purchases of information technology services and equipment, but the Interior Department's contracting officer approved an Army request to use the contract to buy interrogation services.
The GSA, in addition to the Interior Department, has oversight over the contract because it monitors large blanket-purchase agreements for federal supplies and services.
Johnson said companies are required to notify contracting officials if their government clients are requesting products or services that fall "outside the scope of their contract." She said that there is no set penalty for contractors that do not comply, but that GSA can impose a range of enforcement actions, including temporary and permanent suspensions.
Federal laws require agencies to award contracts to companies that have records of integrity and business ethics. Contracting officers must consider criminal, civil or administrative violations or complaints in deciding whether to ban a company from federal work.
"When the government's overhead agency says [a contract can be used] to buy apples and oranges, you can't say, 'Oh, we'd like to buy a chair,' " said Daniel J. Guttman, a fellow at the Center for the Study of American Government at Johns Hopkins University. "Technically that's against the law. . . . It's basically a blatant avoidance of the competitive process."
Other experts said contractors and agencies commonly ignored such restrictions and, until now, such violations got little attention.
"This is an issue that comes up all the time and it frankly makes government contractors uncomfortable. If your customer comes to you and says they want to buy something, you're not going to say you won't sell it to them," said Terry L. Albertson, a lawyer with Crowell & Moring LLP who specializes in government contracts.
Philip Finnegan, director of corporate analysis with the Teal Group Corp., a consulting firm in Fairfax, said that in the past it would be rare for a company to be barred for such a violation. "But nonetheless this investigation and this announcement create a lot of uncertainty about the company," he said.
Brett B. Lambert, executive vice president of DFI International Inc., a defense consulting and research firm, predicted that only a part of the company would be barred from government work if the GSA takes action. He said that is unlikely given how such incidents have been handled in the past.
WorldCom Inc. (now MCI Inc.) wasn't hurt much when it was suspended from getting new federal contracts for five months last year after it admitted violations of accounting rules. During that period it still received contracts under a waiver.
CACI, which got 92 percent of its revenue from federal clients in 2003, has 6,300 employees, more than half of whom work in the Washington region.
Staff writer Renae Merle contributed to this report.